Regarding Gas Inflation

Doug S. Says I’m full of It- Regarding Gas Inflation

I just got the following comment from Doug S.

I saw the chart on how gas prices haven’t really risen when considered with inflation. I am 61 years old, and when I was working in the mid- to late-60s as a high school student, I made $1.60 an hour as minimum wage. Gas was only .25-.35 per gallon (with ‘gas wars’, much of the time cheaper) so with one hour of work I could purchase 5-6 gallons of gas. Now, with a minimum wage of $7.50 or so, you can only purchase a bit more than 2 gallons of gas, depending on the day of the week. Minimum wage has gone up, what, 4.6-5 times or so, but gas prices have gone up 10 times or more. Where am I missing the point???

Based on what I have read, a loaf of bread might have gone up 5-6 times. I do know that you can use figures to make any point you want, but I am not convinced that gas is matching inflation and is ‘less or about the same’ inflated price as it was 40 or 50 years ago. This is garbage. ~ Doug S.

My response:

Doug,

I don’t recall saying that gas is currently cheap or that it is less or about the same as 50 years ago. Although it is about the same as 1918.

If you look at the chart you will see that gas prices in inflation adjusted terms were at one of their lowest points in the 1960’s declining from $2.50 in 2013 dollars in 1960 down to $2.00 in 1970 during the gas price wars that you mentioned. So compared to that specific time-frame, yes prices have increased significantly. However, in 2000, when the inflation adjusted price was only $1.50 you could just as well have said that prices have declined since 1960.

What I said was, most people use a fairly short term perspective of only the most recent few years and so things look especially bad right now because prices have risen drastically since 2000. But if you compare prices to 1918, 1981 or 2008 we are currently near those peak levels. I also said that the average price from 1918 through 2013 was $2.56 (in 2013 dollars) and so anytime gas prices were above that level it is expensive (now) and anytime it was below that level gas was cheap in historical terms (i.e. 1960 -1970 and 1986-2002).

As far as your argument regarding minimum wage, although interesting in a practical sense, it is based on a faulty premise. That is that the minimum wage is somehow related to real prices. The minimum wage is an arbitrary construct of the government based on political posturing. Congress can set it at anything it wants to and only changes it sporadically, so at any given time it could be too high or too low compared to inflation. If tomorrow the government mandated that the minimum wage was $20 would that mean that gasoline is now cheap in historical terms? What if the economy is doing well and even McDonald’s has to pay more than minimum wage in order to attract workers? How does that affect your argument regarding the price of gas? No, in historical terms gasoline is still expensive whenever it is above $2.56 a gallon in 2013 adjusted dollars and cheap when it is below.

If you wish to compare prices to purchasing power, a better measure would be average income or median household income because they are based on actual market based prices rather than on an artificial government construct. ~Tim McMahon, editor

To see the full article that triggered Doug’s question go to Gas Inflation .

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